A freelance graphic designer is offered a project that will pay $1,500 and take two weeks to complete. The designer's only other work opportunity for that same two-week period is a series of smaller tasks for a regular client that would pay a total of $1,200. The designer finds the $1,500 project more interesting and decides to accept it. Based on this information, what is the designer's reservation option?

Identifying the Reservation Option

Analyzing a Choice with a Reservation Option

A company is considering upgrading its software system. The new system costs $50,000 but is projected to increase annual profits by $20,000. The company's other options are to continue using the current system, which has no new costs but also no new profit, or to switch to a different, cheaper software that costs $10,000 and is projected to increase annual profits by $12,000. The company decides to purchase the new $50,000 system. Based on this information, the company's reservation option is to continue using the current system.

Calculating the Value of a Reservation Option

An individual is deciding between three mutually exclusive options for the summer:

1. A full-time internship that pays a total of $5,000.
2. Working a local job that pays a total of $4,000.
3. Taking an unpaid research position that offers valuable experience but no income.

The individual determines that the internship is their best option and the local job is their second-best option. If the pay for the local job suddenly increases to $5,500, how does this change affect the economic evaluation of the individual's choice?

A student is deciding how to spend their spring break. They have several options:

1. Go on a trip to Florida with friends, which they value the most. The trip costs $800.
2. Work a temporary job earning $600. They consider this their second-best option.
3. Stay home and study for exams, which they consider their third-best option.

The student chooses to go on the trip to Florida. Match each element of the scenario to its correct economic description.

Critiquing a Business Decision

Analyzing Economic Surplus

Strategic Business Relocation

A Graduate's Decision with a Lower-than-Expected Wage Offer

Reservation Wage as the Indifference Point for Job Acceptance